The Pound Australian Dollar (GBP/AUD) exchange rate dropped at the end of last week as a downbeat outlook from the Bank of England (BoE) subdued the Pound (GBP). Meanwhile, the Australian Dollar (AUD) was supported by a risk-on impulse in the markets.
Into this week, Sterling recovered some of its losses against perceived-riskier peers as trading optimism abounded on hopes China would reduce some of its coronavirus restrictions.
What’s Been Happening: GBP/AUD Sinks on Recession Outlook
The Pound tumbled against a basket of other currencies at the beginning of last week’s session, as declining mortgage approvals and credit card borrowing worried investors.
Mixed PMI data subsequently extended GBP losses as UK manufacturing activity contracted further. While Tuesday’s release printed above preliminary readings, it highlighted a fall in new orders amid weaker domestic and external demand.
Meanwhile in Australia, the ‘Aussie’ came under initial pressure following the Reserve Bank of Australia’s (RBA) dovish decision to raise interest rates by a meagre 25bps.
However, AUD performance picked up later in the week as better-than-expected manufacturing data out of China lent support alongside risk-on sentiment.
As the Australian Dollar climbed, Sterling continued to plummet. Food inflation data from the British Retail Consortium (BRC) shone a light on the ongoing cost-of-living crisis and at the end of the week, the Bank of England warned the UK was entering a recession which could be the longest in 100 years.
Three Things to Watch Out for This Week:
- Central Bank Dynamics
The Bank of England has already repeated forecasts of a long UK recession this week; further predictions of economic woe are likely to depress the Pound. - UK GDP
Friday’s GDP release will confirm the extent of the UK’s economic contraction. If quarterly data prints at –0.5% as expected, GBP will likely fall further. - Geopolitical Tensions
An escalation of Russian antagonism in Ukraine could inspire a risk-off mood this week, potentially denting AUD sentiment.
Pound Australian Dollar Forecast
Also affecting GBP/AUD this week may be Thursday’s Australian consumer inflation expectations, which could fuel RBA rate hike bets and push AUD higher.